What the Health and Retirement Study Tells Us About Cognitive Ability, Financial Literacy, and the Demand for Financial Advice at Older Ages
Many older adults experience declining cognitive ability and make sub-optimal investment decisions, posing a challenge for themselves and their families.
Cognitive ability and financial literacy can have an indeterminate effect on older persons’ financial behavior. Older investors who recognize that their capacity to manage financial assets is diminished would rationally delegate the task to others. But those who mistakenly believe their acumen remained intact might continue managing their money themselves. This study examines the ambiguous influence of cognitive ability and financial literacy at older ages to gauge their impact on demand for, and use of, financial advice.
The researchers fielded a purpose-built module in the nationally representative survey known as the Health and Retirement Study (HRS) and examined data on roughly 1,180 respondents over the age of 50. The study results account for financial literacy, education, wealth, age, race/ethnicity, marital status, and a widely used measure of cognitive ability.